Regency Mines has its finger in many pies

Regency Mines has a very simple objective; to maximize shareholder value. Its strategy for doing so however is multi-faceted and reflects the extensive background and experience of the directors in the worlds of mining, finance, the City and Australia.

1. Facet number one is direct investment in exploration assets; Regency owns seven properties including a 75% share in a nickel/iron ore/cobalt project in Papua New Guinea and six copper/gold/nickel properties in Australia. The PNG project may be in production, and highly profitable production at that, within twelve months.

2. Facet two is a advisory business; Regency has used its City expertise and contacts to help a number of other mining companies to list on AIM. For example it helped Thor Mining [THR], a molybdenum-tungsten-uranium explorer, to list, taking a 5% equity stake in the process, which it then sold six months later at five times the cost price. (Watch out for an article on Thor Mining on Proactive Investor shortly).

3. Facet three is equity holdings in other mining companies; Regency aims to drive value through transactions in other mining companies and at present Regency holds 60.1% of Red Rock Resources [AIM:RRR] which is exploring for manganese, iron ore, uranium and gold in Australia and Zambia. It also holds 16% of the US-based Aquarian Gold Corporation which mines coal in Indonesia and trades on the pink sheets [PK:AQGC], and owns relatively small holdings in three Australian-based companies: gold explorer Greatland Gold [AIM:GGP], investment group Sunvest Corporation [ASX:SVS] and the unlisted zinc explorer Range Mines Ltd (which will list shortly). The investment in Red Rock alone is worth £4.2m at today?s prices.

Regency thus has its finger in many pies and many commodities, including nickel, copper, gold, manganese, iron ore, uranium, cobalt and coal. By luck, or more likely by judgment, many of these are at historically high prices. Nickel, which is used primarily in stainless steel manufacture, has been the star of the base metals in recent years; prices today are more than double a year ago and five times the level of 2003. And, according to Regency?s chairman Andrew Bell, high prices for nickel are here to stay. Just listen to the Commodity Watch radio extract on Regency?s website where you can hear Mr Bell wax lyrical about the potential for nickel demand as China and India, indeed some 40%+ of the world?s population, are living through an industrial revolution and acquiring stainless steel fridges, cars, washing machines, motorbikes, air conditioning units and the like.

The jewel in Regency?s crown is currently the 584 square kilometre Mambare nickel laterite project in Papua New Guinea which is located at 800 metres altitude on a plateau just north of Kokoda (which the historians among you may know better as the site of a number of world war two battles and campaigns). Parts of the area have been explored for nickel since the 1960s, and in 1999 Anaconda Nickel Ltd (now Minara Resources) reviewed the data on a 158 square kilometre section of the project and estimated that the limonite laterite which lies under 3 to 5 metres of ash overburden contains at least 200 million tonnes of ore with 1% nickel, 50% iron ore and 0.1% cobalt. The saprolite layer beneath has not yet been extensively drilled, but preliminary estimates by Regency suggest that this could contain a further 200 million tonnes grading 1.25 to 1.5% nickel. If correct these estimates would rank Mambare as a large scale producer, with a potential resource, according to Andrew Bell, of £25bn.

But the story gets better. Mining the ore is very straightforward as the limonite is already broken down to a mud-like consistency. No explosives are required therefore and no crushing is needed ? the ore only needs to be scraped and quarried. If the ore were to be processed on site in, say, a High Pressure Acid Leach plant, it would require significant capital investment, of perhaps £400m+. But other options are possible ? and there are three cherries on the cake. Firstly Mambare has good road connections directly to Oro port, 110 kilometres away which gives it significant competitive advantage over other nickel laterite deposits in PNG and elsewhere. Secondly because of the high level of nickel prices there is a rapidly growing demand from China for limonite ore grading 40-50% iron ore and 1% nickel which can be used directly as feedstock for Chinese blast furnaces to produce pig iron which can then be refined into lower quality stainless steel (in fact Chinese imports of direct shipping limonite ore for this purpose soared eight-fold in 2006). Regency has recently signed confidentiality agreements with two major Chinese metals companies and has stated that the ore from Mambare would be suitable this purpose. Thirdly there is scope to keep costs low as labour, (though not fuel), is relatively cheap in PNG, and the only capital requirements are for earth moving equipment, truck haulage to Oro Bay and the provision of storage and belt loading facilities at the port.

So it is a no-brainer to work out that the economics on this project could be extremely favourable. At current prices the contained metal per tonne of ore could be comfortably over $650. Of course the fob price of the ore at port will be just a fraction of that, but even under very conservative assumptions the profit could be $20 per tonne shipped. Regency are planning to prove an initial resource of 5-10 million tonnes and to fast track to a neat, slim, low cost production next year operating at an annualised rate of 1 million tonnes. This could generate profits of $20million dollars per year which is considerably more than the current market capitalisation of Regency.

Details of Regency?s other exploration projects can be found on the website. They represent a mix of green and brownfield projects though none yet have a defined resource. The most advanced is the 200 square kilometre Bundarra copper-gold and possibly uranium project in Queensland, Australia. Bundarra was a mining area in the late 1800s and in the 1960s and which has been sporadically explored since then though work was hampered by fragmented ownership. Regency now owns the entire Bundarra pluton (an igneous rock body) which will enable a systematic evaluation of all prospective areas. The area is considered prospective for a large IOCG (Iron Ore Copper Gold) system.

Regency?s investment in Red Rock (which shares three directors in common) may also prove highly prospective. Red Rock are currently involved in thirteen projects for manganese, iron ore, gold and uranium exploration in Australia, Malawi and Zambia (though it will be floating off its uranium assets shortly). Surface sampling at the Mount Ida project in Australia has yielded 66% iron. Meanwhile the Chiwefwe project in Zambia shares many of the same characteristics as Regency?s Mambere nickel project. Like nickel, manganese is used in steel manufacture, and prospects for demand will be underpinned by the industrial revolutions in China and India. The project itself is well located, lying directly on the Great North Road which runs north through Africa from the Zambian capital Lusaka, and very close to the railway to Dar-Es-Salaam which links to the African network. Cheap hydro electric power is nearby. The manganese itself is at surface with an indicated resource of 2.36 million tonnes at 46% on a 550 metre strike length though a further 6 km shows mineralization. There is a process plant quite close by and Red Rock could start producing and generating cash flow shortly.

So there is no doubt that Regency has been busy in its two and a half years of existence. There have been a number of transactions and the company has built up a diversified portfolio of mining assets in commodities which the directors believe have favourable prospects.

At today?s price of 4.38p the implied market capitalization is £7.45m. This is more than twice its value six weeks ago; the share price has been driven by a recent announcement about Red Rock?s JV with Jupiter Mines and by a visit of the chief geologist to London who demonstrated to a few institutions that the Regency story ?has legs?.

However the value of the direct investments alone is currently well over £4.3m which puts a value of less than £3.2m on the exploration properties. Yet the Mambere project alone, arguably, has the potential to be generating $20m profits annually from next year, (though of course there are risks to operating in PNG). The valuation is certainly very cheap compared to other laterite explorers such as Toledo Mining [AIM:TMC] (which has a market cap of £102m and a 50-60% share of two projects with a pre-JORC resources of 350 million tonnes), and MBMI Resources [TSX.V:MBR] which has a market cap of £79m and pre-JORC laterite resources in the ball park of 350-400 million tonnes at 1.5%-2% nickel.

Watch this space!